For the month of January and year to date, the Day Hagan Logix Tactical Dividend Strategy returned +4.12%*, gross of fees, ahead of the benchmark Russell 1000 Value return of +3.87%* (numbers are total return). It was a strong start to the year for our deep value-oriented strategy even though momentum, growth and high beta (higher risk) performed well in the markets more broadly.

Day Hagan Logix continues to capture attractive market upside despite maintaining, at present, a meaningful defensive cash position based on our disciplined risk management process. Over the last twelve months, Day Hagan Logix has captured 101%* of the Russell 1000 Value Index’s return (gross of fees). This is notable because, since our 2002 inception, the strategy has historically gained 2.29% more than the Russell 1000 Value on an average annualized basis and 2.12% more than the S&P 500 annualized total return. Our view is that this outperformance was driven in large part by our low downside market capture, with the strategy historically capturing just 51% of the Russell 1000 Index’s market downside. All numbers are based on gross of fees returns.

In other words, given the unprecedented bull market post-2008, and the fact that the S&P 500 is now setting the record for the longest period in market history without a 3% drawdown(!), the market has not been tested on the downside for several years and our strategy’s downside protection process has not had much of a part to play. Even so, Day Hagan Logix has produced meaningful, absolute returns during the bull market.

The core emphasis of Day Hagan Logix remains on capital preservation, and we remain vigilant for any downside capture test the market throws our way. For example, during the financial crisis in 2008, we outperformed the Russell 1000 Value index by nearly 20% (gross of fees).

In terms of what we currently hold in the Day Hagan Logix portfolio, we see very attractive risk-return opportunities, as our equity and industry positions indicate that current prices are far below fair market value based on our process. However, we view the broader universe of equities as significantly overvalued, hence the need to take a defensive stance and hold a cash position. It is important to note that while we are carefully and constantly watching the markets and evaluating our positions, we view our performance as a marathon and not a sprint. Yes, day-to-day noise during earnings season can make for some difficult market sessions, but assuming our thesis for a given name or industry is intact, we are comfortable that our nearly 16-year track record is evidence of a discipline that works. Our process relies, as it has since the beginning, on an unemotional, weight-of-the-evidence approach.

At the end of January, Amazon, Berkshire Hathaway and JPMorgan Chase announced plans to start a joint venture to provide their respective employees with healthcare. Almost no detail beyond that was provided, but the announcement alone—like many announcements Amazon has made in other industries—had a significant market impact on healthcare stocks, starting with insurers but extending beyond that, including our Medical Distributor holdings.

Similar to what we saw when Amazon acquired Whole Foods, when names like Walmart and Costco were hit near term but later bounced back, we believe the actual impact on Medical Distributors is exaggerated regardless of where Amazon goes from here. This is certainly the case near term, but we believe it is true even over the next decade as well. The complexity and regulation of the medical supply chain, as well as entrenched, long-term relationships throughout this chain, make significant disruption difficult, especially among the big 3 Medical Distributors: AmerisourceBergen (ABC), McKesson (MCK) and Cardinal Health (CAH), which have roughly 90% market share; we own all three companies in our portfolio. In addition, the landscape continues to shift with companies like CVS and Aetna combining, seeming to make it unlikely for Amazon to be able to offer pharmaceuticals to anyone insured through Aetna. We continue to watch the dynamic closely.

We were proactive with the portfolio in January as dictated by our objective methodology. In fact, it was an unusually busy month in terms of portfolio moves which we believe positions us well for the balance of 2018. We currently hold six industries across sectors and 25 positions (up by two holdings from the previous month-end) which is towards the low end of our historical range, in addition to defensive cash holdings. We sold our Asset Management industry for a return of over 60%* since February 2016 purchase, in turn purchasing Food Processing equities, Archer-Daniels-Midland (ADM), General Mills (GIS), Kellogg (K) and Tyson Foods (TSN). To date, this has been a good industry swap for the portfolio, reflective of our belief that Asset Management has reached our measure of fair market value and that Food Processing is attractively valued.

The success of holding Asset Management for nearly two years provides some insight into our process. We bought the industry holdings at a point where they were meaningfully out of favor based on fears of, among other things, continued fee compression, continued migration to passive investment vehicles from active, and the Department of Labor Fiduciary Rule negatively impacting distribution channels. In reality, all of those concerns were valid in early 2016, and they continue to be to varying extents today. Our process doesn’t suggest that any number of industries and holdings we purchase don’t have legitimate headwinds. Rather, after a thorough fundamental screening inclusive of balance sheet strength and long-term free cash flow generation, we are seeking to identify through our valuation process names where the current price may be an overreaction to those headwinds and where there is a highly compelling entry point over a business cycle. That was certainly the case with Asset Managers.

Many clients come to us with questions about the strategy. Whether big picture or about specific holdings, we strive to be both responsive and open to ongoing dialogue. We are proud of our track record and the disciplined strategy we manage and look forward to continuously building strong, long-term relationships.

We appreciate your support and look forward to the future.


  • Robert Herman
  • Donald L. Hagan, CFA
  • Jeffrey Palmer
  • Arthur S. Day

Printable PDF copy of Article: Day Hagan Logix Tactical Dividend Strategy Update February 2018 (pdf)

Note: The S&P 500 Index is based on the market capitalizations of 500 large U.S. companies having common stock listed on the NYSE or NASDAQ. The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. Indexes are unmanaged, fully invested, and cannot be invested in directly.

Disclosure: *Note that individuals’ percentage gains relative to those mentioned in this report may differ slightly due to portfolio size and other factors. The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Day Hagan Logix (DH Logix), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any DH Logix literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DH Logix, accounts that DH Logix or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DH Logix uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DH Logix recommendations or DH Logix performance rankings, one should also consider that DH Logix may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DH Logix’s past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.


Day Hagan Logix Tactical Dividend Strategy January net return = 4.09%. January S&P 500 Total Return = 5.73%. January Russell 1000 Value Index Return = 3.87%.

All separate account performance data is reported as a "composite" of similarly managed portfolios. As such, investors in the same separate account may have slightly different portfolio holdings because each investor has customized account needs, tax considerations and security preferences. The method for calculating composite returns can vary. The composite performance for each separate account manager may differ from actual returns in specific client accounts during the same period for a number of reasons. Different separate account managers may use different methods in constructing or computing performance figures. Thus, performance and risk figures for different separate account managers may not be fully comparable to each other. Likewise, performance and risk information of certain separate account managers may include only composites of larger accounts, which may or may not have more holdings, different diversification, different trading patterns and different performance than smaller accounts with the same strategy. Finally, may or may not reflect the reinvestment of dividends and capital gains.

Gross-of-Fee returns are collected on a monthly and quarterly basis for separate accounts and commingled pools. This information is collected directly from the asset management firm running the product(s). Morningstar calculates total returns, using the raw data (gross-of-fees monthly and quarterly returns), collected from these asset management firms. The performance data reported by the separate account managers will not represent actual performance net of trading expenses, management fees, brokerage commissions or other expenses. Management fees as well as other expenses a client may incur will reduce individual returns for that client. Because fees are deducted regularly, the compounding effect will be to increase the impact of the fee deduction on gross account performance by a greater percentage than that of the annual fee charged. For example, if an account is charged a 1% management fee per year and has gross performance of 12% during that same period, the compounding effect of the quarterly fee assessments will result in an actual return of approximately 10.9%. Clients should refer to the disclosure document of the separate account manager and their advisor for specific information regarding fees and expenses.

Down Capture ratio measures the portion of bear market movements that the money manager(s) captured. Ideally, the down capture will be less than 100%.Alpha measures the difference between the separate account's actual returns and its expected performance given its level of risk (as measured by beta). Alpha is often seen as a measure of the value added or subtracted by a money manager. The higher the alpha, the better the manager is at selecting stocks. Specifically, measures the manager's excess return over and above that predicted by their benchmark and beta. Calculated for separate accounts with at least a three-year history. Beta is a measure of a separate account's sensitivity to a benchmark (i.e. often the general market as represented by S&P 500). A portfolio with a beta greater than one is more volatile than the market, and a portfolio with a beta less than one is less volatile than the market. Calculated for separate accounts with at least a three-year history. Sharpe Ratio measures risk-adjusted return by using standard deviation and excess return to determine reward per unit of total risk. Use of standard deviation as a measure of risk assumes the separate account has not been fully diversified to eliminate non-systematic risk as a factor of investor concern. The higher the ratio, the better the fund's risk-adjusted performance. Should be compared to other managers and the benchmark.